"Operating Profit Up 300%: Refining Companies Celebrate Q2 Results... But Gloomy Outlook for Second Half"

Challenging Second Half Due to Stable Oil Prices and Weakened Demand

Data provided by SK Innovation

The four major refiners recorded their highest-ever sales in the second quarter of this year. The performance, surpassing market expectations, was influenced by soaring crude oil prices due to the Russia-Ukraine war and global supply-demand imbalances, which strengthened refining margins.

However, the outlook for the second half of the year is not optimistic. Demand may decline due to a global economic recession, which could lower international oil prices and turn inventory gains into losses. It is widely expected that achieving results comparable to the first half will be difficult.

◆ Refiners Fire 'Celebratory Shots' with Trillion-Won Operating Profits ＝According to the refining industry on the 30th, the four domestic refiners?SK Innovation, GS Caltex, S-OIL, and Hyundai Oilbank?recorded their highest-ever performance in the second quarter.

SK Innovation, which announced its second-quarter results the previous day, achieved sales of KRW 19.9053 trillion and operating profit of KRW 2.3292 trillion. Compared to the same period last year, these figures increased by 76.8% and 318.9%, respectively. These numbers far exceeded the record first-quarter sales of KRW 16.2615 trillion and operating profit of KRW 1.6491 trillion.

S-OIL also fired a record-breaking celebratory shot. S-OIL disclosed on the same day that its consolidated sales for the second quarter reached KRW 11.4424 trillion, with an operating profit of KRW 1.722 trillion. Compared to the same period last year, sales increased by 70.5%, and operating profit rose by 201.6%. S-OIL’s profit for the first half of the year alone exceeds KRW 3 trillion.

Although results have not yet been disclosed, the industry expects GS Caltex and Hyundai Oilbank to post results surpassing or similar to those of the first quarter this year.

On the 24th, as domestic gasoline and diesel prices continue to decline for the third consecutive week due to the drop in international oil prices and the expanded effect of fuel tax reduction, a major gas station in Seoul is selling gasoline at 1,939 KRW per liter and diesel at 1,969 KRW per liter. Photo by Jinhyung Kang aymsdream@

◆ Refiners Cite "Significant Increase in Export Volumes Due to Geopolitical Issues" Amid Record-Breaking Performance =SK Innovation explained, "The improvement in refining margins due to global energy supply instability caused by geopolitical issues and increased demand for petroleum products following the COVID-19 endemic, along with increased inventory-related profits from rising oil prices and optimized facility operations, contributed to profit improvement. Above all, the significant increase in petroleum product export volumes since the beginning of this year was a major factor in the performance improvement."

It is analyzed that the high crude oil prices and the ultra-strong refining margins caused by global petroleum product supply disruptions following the Russia-Ukraine war had an impact. An S-OIL official explained, "(In Q2 this year) sales were influenced by the rise in selling prices due to international oil price increases, expansion of strong refining margins, turnaround to petrochemical profits, and improved lubricant profits."

Petroleum product exports surged significantly this year, ranking second among major export items in the first half, following semiconductors. According to the Korea Petroleum Association, the export value of petroleum products by the four domestic refiners in the first half of this year was USD 27.956 billion (approximately KRW 36.681 trillion), a 97.6% increase compared to the same period last year. This surpassed the highest level in 10 years since 2012. The export value for this first half is the highest ever recorded for a half-year period.

The export price per barrel of petroleum products in the first half of this year was USD 126.6 (approximately KRW 166,175), a 75% increase compared to the same period last year, and export volume increased by 13% to 220.9 million barrels. In particular, the export price of diesel reached USD 135.2 (approximately KRW 177,463) due to global supply instability caused by the Russia-Ukraine war.

At the beginning of this month, vehicles lined up long at the Altteul Gas Station in Mannam Square Rest Area, Seocho-gu, Seoul, to refuel. Photo by Kim Hyun-min kimhyun81@

◆ 'Sharp Drop' in Refining Margins and 'Stable' International Oil Prices =According to the refining industry, as of the third week of this month, refining margins stood at USD 3.9, marking the lowest point of the year. Compared to the highest point of the year on the 21st of last month (USD 30.49), refining margins plunged by USD 26.69. Within just one month, refining margins fell from the highest to the lowest point of the year.

The Russia-Ukraine invasion has increased oil price volatility this year. Refiners import crude oil, refine it, and sell it as gasoline, diesel, etc. Refining margin refers to the margin obtained by subtracting raw material costs, including crude oil, from the final petroleum product price. Although refining margins vary by refiner, USD 4 to 5 is considered the breakeven margin. If refining margins are above USD 4 to 5, profits occur; below that, losses arise.

The stability of international oil prices led to the sharp drop in refining margins. Dubai crude, which surged to USD 127.9 per barrel in March immediately after Russia’s invasion of Ukraine, has recently maintained around USD 100. West Texas Intermediate (WTI) and Brent crude prices have also hovered around USD 100, showing a downward stabilization trend.

Concerns about an economic recession, coupled with the spread of the COVID-19 Omicron variant raising the possibility of a resurgence, have led to a contraction in global petroleum product demand, which is interpreted as the main cause of the decline in international oil prices. Consequently, a gloomy outlook has followed for the second-half performance of the four major refiners.

A Korea Petroleum Association official stated, "Despite high oil prices and global oil supply instability, the refining industry contributes to supply stability through stable product supply and actively exports to profitable overseas markets. Although uncertainties in export markets are expected to be greater in the second half compared to the first half, the industry will compete by producing high-quality products based on excellent refining capabilities and diversifying export regions."

This content was produced with the assistance of AI translation services.